Investing in Southeast Asian Startups
At SeedPlus we have a triangle that we follow when investing in Southeast Asian startups. Team, market, and strategy. The market has to be big enough. You will see some amazing people with amazing products but no offense to them the market is never going to be that big. Therefore it is not really a venture business, so in those cases, we will pass. However, if they can show that there is a big enough market. Also, we think the team has the pedigree to do it and we like their strategy. Then we will definitely dig in. If it is missing any one of those components, we generally will pass.
The way I look at startups and venture-backed businesses. What I see is that once you raise money you are always raising money. You either have a business that does not need to raise capital. Or once you start something whether it is a seed stage or in an accelerator program. Or you are now selling shares for either help or assistance or selling for capital, you always will be. Very few things get off that train. So if you are on that train we usually try to explain to people. Sometimes we even start from almost a B and work backward. Saying that they are going to always be raising money and at each stage of these life cycles you want to push your evaluation up. You want to sell as little shares as possible and you want to take the most money you can for that. So then what we try to tell them is that if we give you an investment today. What do you need that is going to allow you to go out into the market with an evaluation.
I have been in the Singapore region going on 20 years. I am Singapore’s biggest fanboy. Indonesia might have the size and the market potential but when it comes to what the government has done in Singapore form everything from Venture Capital matching, easy employment passes, to the things they do for foreigners to quickly set up a company and raise money. Bar none it is one of the best countries in the world for a startup. In fact, most startups in the region have their own corporation in Singapore for these various advantages. I think from that perspective Singapore is amazing. But I think every system has their own kind of strength and weaknesses. It depends on if you are talking about a local market or if you are talking about being the HQ for a regional market. Those are two different problems. In that regard, I think Singapore is probably winning. When it comes to the size of the local market and opportunities…it is just a small island with only a few million people and high net worth. But it is nothing like entering Thailand, Indonesia, and so on.
In Southeast Asia, you see a lot of overvalued companies. That is mostly because of the craziness of fundraising. The real test of these companies is going to be whether they can go public? Can they actually create exits and will they be able to hold their value? So all these crazy unicorn evaluations, in my mind they are not real. Not until the companies have gone public or they have created some exit that actually cements that value. In our part of the world, only two have done that which are Garena and Razer.
Startups need to realize that they are not going to get an answer in one meeting, you are not going to get a term sheet after two meetings. You are going to have to get to know us and we are going to have to get to know you. So I suggest to everybody that they remember that karma always comes back to get you, so be kind during the whole process. That is on both sides of the fence. Through that, you will get the relationships and the network you need to raise money because you might be talking to me and I won’t end up giving you money but I will introduce you to somebody who might. But that is only if you are polite and human during the whole process. So people need to remember that it is a people based process and not just about decks and metrics.